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Gun-Slinging Your Money in the Wild West of Financial Deregulation

A lady in a cowboy hat to represent the wildness of financial dereguation

Deregulation talk was all the rage with the new administration in 2016, and it’s obvious that the stock market loved the concept. The deregulation trend has not only continued, but it has also intensified. There’s also no shortage of political and economic chatter about what deregulation means and who it impacts. This article considers the potential bottom line to you as a consumer as deregulation has shaped the U.S. economy since 2016, What might deregulation mean to your personal finances?

Investopedia defines deregulation as “the reduction or elimination of government power in a particular industry, usually enacted to create more competition within the industry.” Experts further categorize deregulation as “economic” or “social.” Economic deregulation involves loosening governmental control in sectors like energy, communications, and transportation whereas social deregulation reduces laws related to health, safety, or environmental risks.

What might happen to your bank balance when economic or social deregulation takes place, and how can you keep and grow your money?

Have More Choices As a Consumer

The cornerstone of deregulation is that it is supposed to open the door to more competition among businesses that can now enter market sectors that were previously too heavily regulated for them to get in. More companies offering products and services should translate to more choices for you as a consumer. You also get the chance to “vote” for the companies you like (and against the ones you don’t) with your wallet. Deregulation aims to give you and your fellow consumers the ability to shape the companies that serve you by going elsewhere when you are dissatisfied. When it works, deregulation means that you’ll find more new products, better services, and more opportunities.

Pay Less for the Things You Want

Although prices sometimes increase because of deregulation (the cable TV industry is one example), the expectation is that prices will decrease. That’s great for you as a consumer. Calen Siddall of the Canadian Student Business Review writes that “overall, privatization proves to increase the profitability of an economy by lowering the financial cost of services” and allowing companies to pass their cost efficiencies on to you in the form of lower prices. The additional competition discussed above also leads to lower prices as companies vie for your attention and your dollars. When there’s competition, there’s an opportunity for you to make deals and get discounts.

Make More Money from the Stock Market

No one can predict what will happen in the stock market. However, historically deregulation has paved the way for strong company profits which in turn helped raise stock prices. In particular, financial company stock prices have increased with less regulation; Ben Lane of Thomson Reuters writes that “financial institutions, particularly non-bank financial institutions, could see an earnings benefit through lower compliance costs related to CFOC and potentially fewer fines.” Other deregulated sectors have enjoyed stock market success as well. Steven Einhorn in the Financial Analysts Journal writes that better returns in the short term from deregulation mean that “the longer-term implication is that the real return on common stocks should increase commensurately.” The promise of deregulation in 2020 has contributed to record-breaking stock market levels in the first quarter, and many experts expect market strength to continue as deregulation is actually put into place. For you as an investor or as a participant in a stock-based 401(k) or IRA, if that is the case then deregulation could lead to lucrative gains in your portfolio.

Educate Yourself to Take Responsibility for Your Personal Financial Safety Despite Financial Deregulation

Deregulation means that you need to take more personal responsibility for keeping your money safe. If you are a regular Investopedia reader, you are probably already doing that. When economic or social deregulation takes place, there are fewer safeguards for consumers because rules and regulations protecting them are reduced. This situation needn’t necessarily impact your finances negatively, but it does require additional vigilance on your part. It’s like walking along a steep cliff; you’re going to be much more careful if there’s no guardrail than you would be if a sturdy protective barrier lines the path to protect you.

In addition to making sure you personally avoid consumer scams, you will want to look out for those who are financially weaker or less experienced than you. As deregulation accelerates, consumers who aren’t used to planning for financial safety will need extra help. Make it your business to help out your adult kids, neighbors, friends, co-workers, the elderly, and others who might not be as sharp a consumer as you are. A 2002 Consumer Reports article described the deregulation that began in the 1980s as full of “broken promises, deceptive marketing, and dreadful service [that] have become accepted business practices in an increasingly Wild West marketplace.” The cowboys of the Wild West adhered to a creed of individualistic self-protection; consumers should follow suit. To succeed in a deregulatory environment, you need to protect yourself and your loved ones with knowledge and awareness. Let’s face it; even when stronger regulation is in place, you still need to pay attention as a consumer if you really want to be financially safe.

Like it or not, the United States is moving toward greater deregulation. As Susannah Snider of US News & World Report points out, financial literacy has never been more important. Regardless of your political views and no matter what happens, you want to be sure to take steps to maximize your personal share of the financial pie. These steps will help you get there.

Kathryn Hauer, a Certified Financial Planner ™, adjunct professor, and financial literacy educator has written numerous articles and several books including the “11-Step, DIY, Comprehensive Financial Plan Workbook” and “Financial Advice for Blue Collar America.” She works to help clients and readers understand and act on complex financial information to keep them and their money safe. She functions as a strong advocate and guiding light for her clients as they move through murky and unfamiliar financial and career worlds. Read more on her website.


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